Our Take: Shamed By Success?

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As we warned last week, the onset of earnings season has brought out the "Shame on You Bankers!" placard-waving crowd in full force. The crescendo will only grow louder in the months ahead. Read on for advice about how to respond, should a shamer get in your face between now and bonus time.

First came a blizzard of headlines spotlighting Goldman Sachs' projected $20 billion-plus compensation and benefits expense for all of 2009 (often mislabeled as a "bonus pool," or even an "executive bonus pool"). Then The Wall Street Journal weighed in with an analysis that found industry-wide pay this year is running comfortably ahead of 2007, the pre-crisis peak.

Now that third-quarter numbers are out, efforts to punish success are picking up speed. On Wednesday a group of religious organizations unveiled a shareholder resolution urging Goldman to report and "justify" for the public how senior executive compensation outpaced the "median wage" of the firm's U.S. employees from 2000 through 2009.

Can you say, "Publicity stunt?" Here is a coalition that includes the Benedictine Sisters of Mt. Angel, Oregon - who proudly cite their "125 year history of service to the poor" - masquerading as champions of downtrodden Goldman Sachs workers whose median "wage" (you have to love the nuns' chutzpah in choosing that word!) runs well into six figures.

Move Over, Michael Moore

The discourse gets especially interesting when opponents of capitalism cloak their agenda in the language of economics. That's the territory inhabited by William K. Black, a University of Missouri professor and bank-fraud expert who was a top regulator around the time of the 1990 S &L collapse. His essay published Monday on new deal 2.0 (a Web site of the Franklin and Eleanor Roosevelt Institute, a liberal think tank) interweaves economic crisis commentary with teenage insults dressed up in academic gloss. Think, Monthly Review meets Rolling Stone. Or James Galbraith meets Michael Moore - both of whose ideas Black cites.

When you cut through the fog of politically charged neologisms like "predator state," "criminogenic," and "control fraud," his essay makes one simple point: The financial sector preys on the real economy it's supposed to serve. Can you say, "Vampire squid"?

Black takes pains to separate "financial elites," who he seeks to demonize, from entrepreneurs and businesses that, he says, "make real tools" and "help the real economy." In so doing, he repeatedly falls prey to a common misconception: that the financial system allocates capital, rather than just serving as a channel through which savers - you and I - provide capital to firms that seek it.

Who Really Allocates Capital? We All Do

For instance, as evidence that the finance sector misdirects capital, he states: "Corporate stock repurchases and grants of stock to officers have exceeded new capital raised by the U.S. capital markets this decade. That means that the capital markets decapitalize the real economy."

In what way is the finance sector to blame for this? Corporations don't need investment bankers to repurchase their own shares or issue shares to officers. Those actions are driven by corporate decision-makers - that is, by the "real economy" that Black paints as a noble victim of an allegedly bloated and corrupt financial system.

Later, he writes: "The financial sector's fixation on accounting earnings leads it to pressure U.S manufacturing and service firms to export jobs abroad, to deny capital to firms that are unionized, and to encourage firms to use foreign tax havens to evade paying U.S. taxes."

Once again he seems to confuse financial institutions - intermediaries that channel capital from investors to corporations - with the owners of capital. Rather than the "financial sector" choosing and enforcing those criteria Black finds so distasteful, it is the mass of Americans who do that. We decide to own stocks we anticipate will pay us dividends (earnings represent expected future dividends), and to own bonds we expect will pay interest and principal on time... and penalize companies whose results suggest they won't. Instead of profits, Black contends that other criteria such as "superior sustainability" and the promise to "reduce poverty and inequality," should determine how our capital is allocated.

Stand Up For Your Profession

Anti-finance rhetoric will intensify in coming months. You'll hear it on your commuter train, at your Thanksgiving dinner, and over the December holidays. Your skin is probably pretty thick or you wouldn't be in this business. Still, it couldn't hurt to have solid answers at the ready when some smug know-nothing takes potshots at your career choice, compensation or ethics.

You'll also be giving back to the profession. If more of us spoke up when challenged in private, maybe Lloyd Blankfein wouldn't feel a need to dignify Matt Taibbi's next puerile diatribe with a public response. Now, that's shameful.

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